A few years ago, I remember reading a lot about the housing market was wildly inflated. That is to say, a house that would have sold for $60,000 a decade ago now lists for almost double that today. "Real estate investor" became a full time job for many, buying houses, making minor cosmetic changes and selling for a large profit. At the time, pundits speculated that the market could not sustain the pace, and eventually a correction would be in short order. The American psyche does not care much for pessimists, so these warnings went largely ignored.
In related news, I read how people my age went out and took out more of a mortgage than they could ever afford to buy more of a house than they would ever need. They lived the American Dream by living in very nice, quiet neighborhoods with the best school systems. Mortgage brokers sold them on that dream, and why not jump on in? It looked like a win-win proposition for a generation that has never gone without. The house and yard were something to be proud of; the next goal (45 years off) was retirement to live exactly like they were living at that moment in time, less full-time work.
Fast forward to today. Housing prices are tumbling as those still left in the market are struggling to break even or cut their losses. My home state of Tennessee has seen a month-over-month increase of about 33% in foreclosures, almost double the year prior. That translates 4,639 people losing their property in August with 244,000 nationwide in that same period. Here is a tough fact for many: rural America may not respond immediately to economic upswings and downturns, but they are often hit hardest.
I am not an economist, so I have to rely on the opinion of one to get a firm handle on where things went wrong. We can lay blame at the feet of government, but I strongly believe that the problem is a lack of common sense.
- The so-called "real estate investor" should not be fleecing prospective buyers into thinking that a coat of paint and mulch in the front yard is worth an extra $20,000.
- The twenty-something should not be of the mindset that their entry-level jobs can pay for a house with a two-car garage and five bedrooms in a neighborhood that requires a membership fee.
- The mortgage underwriter should have enough sense for his or her company's future to not advise the aforementioned twenty-something to pay for it on an adjustable rate mortgage.
My wife and I rent an apartment that is probably more than we need, but well within our budget. The marketplace is not particularly kind to first-time homeowners right now, so we are not quick to become them. I have to wonder if the people that have suggested we hurry up and buy are in some small way wanting us to share in the "fun." We do intend to buy within the next two to three years, but not before the lessons of today finally sink in for all involved.